NCUA Issues Legal Opinion Letter on CUSO and MBL Expertise
Last week, NCUA issued Legal Opinion Letter 08-0302 (May 1, 2008). You may access it here. In the guidance, NCUA clarified how a CUSO may provide the "direct experience" needed under NCUA's member business lending regulation and further discussed "conflict of interest issues" surrounding member business lending.
In the legal opinion letter, NCUA clarified that a credit union may use the services of a CUSO to satisfy the direct experience even though the CUSO may not be independent of the transaction. That being said, NCUA appeared to find issues with a specific fee arrangement between a credit union and its CUSO.
...We noted, however, the CUSO appears to be compensated on a fee basis, collecting fees in connection with origination, servicing, participations, referral and document preparation. Under this fee structure, the CUSO appears to be paid only or primarily when a loan is funded. This situation creates an inherent conflict of interest as the CUSO has a direct interest in recommending a loan be funded and not denied. We recommend you address any questions or concerns regarding the nature of this arrangement or specific transactions with the appropriate regional director. (Emphasis added.)
As always, I recommend that you read the letter in its entirety, especially if your credit union does member business lending.